A rebound in lending is sending a strong signal that the US economy continues to improve… and Ally Financial Inc. (NYSE:ALLY) could be the Top Stock to capitalize on America’s rejuvenated borrowing spree…
Earlier this month, the Fed announced that consumer borrowing increased in March by the largest amount in over a year.
U.S. consumer credit increased by $17.53 billion to $3.14 trillion, the biggest jump since February 2013.
Much of the growth stemmed from a growing demand for student and auto loans…a whopping 94% worth.
Although households still remain cautious about assuming too much debt, gains in borrowing are usually a positive sign that people have more confidence in the economy. Increased household borrowing can fuel consumer spending, which in turn accounts for 70% of economic activity in our country.
Revolving credit, which mostly measures credit-card use, rebounded by $1.13 billion after falling by a revised $2.73 billion in February. Non-revolving credit rose $16.40 billion in March. And this latest uptick in borrowing seems to be gaining momentum…
The value of auto and student loans in March stood at $2.28 trillion, up 7.8% from a year ago. This is the 31st consecutive month going back to September 2011 that these loans have gone up.
Car sales are also on the rise — April marks the second consecutive month of 16 million-plus units sold.
If these results can continue to improve – especially in the auto sector – then one financial company could be primed for gains this year…
Top Financial Stock To Buy Today:
Ally Financial (NYSE:ALLY) is certainly no spring chicken.
As the former financing arm of General Motors (NYSE:GM), the once-embattled lender known as GMAC Inc. received a massive $17.2 billion government bailout when the financial crisis hit.
In an effort to dispose of its ownership in Ally after debts were paid back, the Treasury Department initiated an IPO for Ally last month, which allowed the government to raise around $2.4 billion.
With an additional $181 million being raised from the sale of additional shares to the IPO underwriters, the Treasury will recover approximately $17.8 billion at the end of it all.
“Taxpayers have recovered more than was disbursed to Ally, and we will continue to evaluate exit strategies for the remaining Ally investment,” Tim Bowler, the Treasury’s acting assistant secretary for financial stability, said in a statement.
Today, Ally is a stand-alone company that’s set on offering some of the best loan programs and rates in the business, competing head-to-head with the likes of Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM).
With no physical locations, the Internet-based bank is able to provide significant premiums over its rivals, along with conveniences such as ATM fee reimbursements and check deposits via smartphone pictures.
The smoke from the IPO is still settling for the bank as it continues to consolidate its various business lines. For Q1 2014, it posted a profit of $227 million, or $0.33 per share, down from $1.09 billion, or $2.16 per share, from a year earlier (last year’s quarterly spike was due to Ally’s one-time $900 million sale of its Canadian operations).
Profits in Q1 more than doubled that of its Q4 results, when it posted just $104 million.
Of course, having a wealth of experience in the auto loan sector will serve Ally well also, as it is well positioned to cater to the growing trend of online and mobile banking.
In a matter of a few years, Ally has transformed itself from an embattled lender into a bank for the future.
This one could be a long-term winner.